This option is available when you right mouse click a file or track, session or CD/DVD icon.
It allows you to create a list of all erronous sectors covered by the object you selected.
Either in a text file or in the Edit window.

E.g. if a file is located on addresses x to x+10 and addresses x+3 and x+4 are unreadable, then the listing will show those two files.

Note

A block can only be labeled as unreadable if it is truly read.
So on startup you may find less errors per object than after extraction of that object.
On the other hand, sectors may be labeled unreadble immediately, before reading them, because the program knows they are in an unreadable area.

Following actions do full surface scans and after completion all errors should be known, provided they are repeatable (some hardware flip flops from time to time on bad sectors)

Mac files often consist out of a data fork and a resource fork (see more here).
When these files are extracted to a Windows PC, only the part useful for Windows users is extracted.
And hence only the errors for the part that would be extracted to a PC are shown.
If in the options it is set to extract to a MacBinary file, all parts of the file will be extracted, and in that case all erronous blocks will be listed (if verified already)

Note for when files are immedately seen as unreadable, even when not read yet

It is possible that a file system says that files are located somewhere physically outside the media range
E.g. after a power cut or buffer underrun or simply by faulty mastering it is possible that the track is too short to contain the listed data.
Such files are labeled immediately as unreadable with this icon : and will show up in the list of unreadable files even when not read yet.

Note for when you check the errors of a track, session or full CD.

The errors known for that object are shown.
So it is perfectly possible that no errors are shown for a full CD whereas a lot of files are labeled as unreadable.
In that case the files are physically located (according to the file-system) on locations outside the tracks, in pre-gaps, session overhead or simply beyond the end. That's also the reason why these files are labeled as unreadable then.

The other way around is also possible.
It is perfectly possible to have a track with many read errors but with all files intact and readable.
An example of such a track would be a variable-packet track. The track was written with many variable packets and between every packet there is often a zone that is unreadable. However, a file system should balance the files so that none of them are in such a packet transition.
The software has no way of knowing where these transitions are, so hits them again and again when reading all content (surface scan, making an image or scanning for lost data) and hence labels these sectors as unreadable for that object.

Additionally, depending on the method the CD was written and depending on the drive you are using to do a scan, the last two blocks of a track can often be unreadable. These so called run-out blocks are supposed to contain no valid data and so usually no file is affected by these errors.

For more on files and other objects and listing the errors, read this.